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14. Fendrick wants to buy a new dining room set for $900.
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He is considering four methods of payment. After looking at his budget as well as his actual expenses for the past few months,
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he thinks he can save $80 per month towards this purchase. He has four options, described in detail on the table below.
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Which option is best for him?
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(a) He could pay cash up front if he waits almost a year, but he would prefer not to wait that long.
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(b) He could use the furniture store's normal installment plan that has a $100 downpayment and then a 15% annual interest rate.
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(c) He could use the furniture store's special zero down plan with an 18% annual interest rate.
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(d) He could open a new credit card with a 22% annual rate.
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A - SETTING ASIDE $80 PER MONTH TO PAY CASH UP FRONT
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12
Month
Old Balance
Payment
Interest Due On
Interest Rate
Interest Amount
New Balance
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1$900.00$80.00$820.000.00%$0.00$820.00
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2$820.00$80.00$740.000.00%$0.00$740.00
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3$740.00$80.00$660.000.00%$0.00$660.00
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4$660.00$80.00$580.000.00%$0.00$580.00
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5$580.00$80.00$500.000.00%$0.00$500.00
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6$500.00$80.00$420.000.00%$0.00$420.00
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7$420.00$80.00$340.000.00%$0.00$340.00
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8$340.00$80.00$260.000.00%$0.00$260.00
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9$260.00$80.00$180.000.00%$0.00$180.00
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10$180.00$80.00$100.000.00%$0.00$100.00
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11$100.00$80.00$20.000.00%$0.00$20.00
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12$20.00$20.00$0.000.00%$0.00$0.00
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$900.00Total Paid$0.00
Total Interest
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B - INSTALLMENT PLAN (had $100 downpayment, find the interest rate with 0.15 divided by 12)
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30
Month
Old Balance
Payment
Interest Due On
Interest Rate
Interest Amount
New Balance
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1$800.00$73.00$727.001.25%$9.09$736.09
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2$736.09$73.00$663.091.25%$8.29$671.38
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3$671.38$73.00$598.381.25%$7.48$605.86
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4$605.86$73.00$532.861.25%$6.66$539.52
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5$539.52$73.00$466.521.25%$5.83$472.35
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6$472.35$73.00$399.351.25%$4.99$404.34
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7$404.34$73.00$331.341.25%$4.14$335.48
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8$335.48$73.00$262.481.25%$3.28$265.76
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9$265.76$73.00$192.761.25%$2.41$195.17
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10$195.17$73.00$122.171.25%$1.53$123.70
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11$123.70$73.00$50.701.25%$0.63$51.33
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12$51.33$51.33$0.001.25%$0.00$0.00
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$854.33Total Paid$54.33
Total Interest
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C - ZERO DOWN PLAN (find the interest rate with 0.18 divided by 12)
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48
Month
Old Balance
Payment
Interest Due On
Interest Rate
Interest Amount
New Balance
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1$900.00$0.00$900.001.50%$13.50$913.50
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2$913.50$0.00$913.501.50%$13.70$927.20
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3$927.20$0.00$927.201.50%$13.91$941.11
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4$941.11$0.00$941.111.50%$14.12$955.23
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5$955.23$0.00$955.231.50%$14.33$969.56
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6$969.56$0.00$969.561.50%$14.54$984.10
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7$984.10$180.00$804.101.50%$12.06$816.16
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8$816.16$180.00$636.161.50%$9.54$645.70
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9$645.70$180.00$465.701.50%$6.99$472.69
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10$472.69$180.00$292.691.50%$4.39$297.08
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11$297.08$180.00$117.081.50%$1.76$118.83
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12$118.83$118.83$0.001.50%$0.00$0.00
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$1,018.83Total Paid$118.83
Total Interest
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D - CREDIT CARD (find the interest rate with 0.22 divided by 12)
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Month
Old Balance
Payment
Interest Due On
Interest Rate
Interest Amount
New Balance
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1$900.00$80.00$820.001.83%$15.03$835.03
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2$835.03$80.00$755.031.83%$13.84$768.88
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3$768.88$80.00$688.881.83%$12.63$701.50
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4$701.50$80.00$621.501.83%$11.39$632.90
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5$632.90$80.00$552.901.83%$10.14$563.04
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6$563.04$80.00$483.041.83%$8.86$491.89
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7$491.89$80.00$411.891.83%$7.55$419.44
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8$419.44$80.00$339.441.83%$6.22$345.67
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9$345.67$80.00$265.671.83%$4.87$270.54
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10$270.54$80.00$190.541.83%$3.49$194.03
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11$194.03$80.00$114.031.83%$2.09$116.12
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12$116.12$80.00$36.121.83%$0.66$36.78
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13$36.78$36.78$0.001.83%$0.00$0.00
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$916.78Total Paid$81.75
Total Interest
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